Kat Yue Construction Engineering Ltd v. Fai Lee Construction (H.K.) Ltd
Read the full judgment text of HCA 2494/2024 on BabelCite. This High Court CFI judgment was delivered on 20 August 2025.
1. By a summons dated 12 February 2025, the Defendant applies for an order that these proceedings be stayed in favour of arbitration. The application is made pursuant to s. 20 of the Arbitration Ordinance (Cap 609) (the “AO”). The Plaintiff resists the application.
Cited by 1 case · Cites 4 cases
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HCA 2494/2024 [2025] HKCFI 3298 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2494 OF 2024 ________________________ Between
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________________________ J U D G M E N T ________________________ 1.By a summons dated 12 February 2025, the Defendant applies for an order that these proceedings be stayed in favour of arbitration. The application is made pursuant to s. 20 of the Arbitration Ordinance (Cap 609) (the “AO”). The Plaintiff resists the application. 2.In gist, the issue between them is as to the effect of a settlement agreement entered into between the parties on 11 November 2024 (the “Settlement Agreement”) on an arbitration clause in a contract entered into by the parties on 13 June 2024 (the “Contract”). The Plaintiff argues that the terms of the Settlement Agreement displace the arbitration clause in the Contract and that the claim in these proceedings is made under the Settlement Agreement and not under the Contract. The Defendant argues that the claim is based on the Contract and not on the Settlement Agreement, and so it falls within the arbitration clause, or at least prima facie falls within the arbitration clause, and hence it is entitled to a stay so that the matter can be determined in an arbitration. The Contract 3.Both parties are Hong Kong incorporated construction companies. 4.The Contract entered into by the parties on 13 June 2024 is entitled “Sea-sand transportation and discharge contract” and is governed by Hong Kong law. Under its terms, the Defendant agreed to pay the Plaintiff to provide marine plant to receive and dispose of sand fill from the Defendant’s construction site at Kwai Chung Town Lot No. 531, New Territories. In turn, the Plaintiff contracted with other contractors to deliver sand. The sand was to be used as infill in connection with the 3rd runway project at HKIA. 5.Clause 6.1 of the Contract provided:
6.By clause 6.2 of the Contract, the price to be paid by the Defendant was set at HK$ 45/metric tonne of sand disposed of by the Plaintiff. 7.In the event of disputes, clause 12.3 of the Contact provided for mediation in accordance with the rules of the HKIAC, and in the event that this did not resolve the dispute, through arbitration in accordance with the laws of the HKSAR. In agreed translations:
The suspension of deliveries of sand 8.From 16 July 2024, the Defendant supplied the Plaintiff with sand. 9.However, on 27 September 2024 the Defendant notified the Claimant that because of various factors, it would have to suspend deliveries on 30 September 2024. The deliveries stopped at or about that time. 10.The Defendant signed off the letter saying, 本公司有不足之處：請多多涵！(“Where the company has had shortcomings it asks for your understanding!” in the Plaintiff’s translation). The Plaintiff argues that this shows that the Defendant accepted that it was in breach of contract, so that the only matter left to decide is as to quantum. However, the Defendant submits that this reads too much into this statement. Viewed against the case as a whole, I do not consider that there was an acceptance of liability on the part of the Defendant. 11.On 7 October 2024, the Plaintiff’s lawyers wrote to the Defendant stating that in stopping the supply of sand fill the Defendant was in repudiatory breach of the Contract. They demanded that the Defendant should rectify the breach by resuming the supply of sand fill in accordance with the Contract. 12.On 16 October 2024, the Plaintiff’s lawyers wrote again to the Defendant to the effect that it had failed to rectify the breach, which was accepted as putting an end to the Contract. Demand was made for payment in the sum of HK$16,342,815 which was calculated by reference to the Contract. In default of payment, the lawyers said, they had standing instructions to commence the dispute resolution procedure under clause 12.3 of the Contract (the arbitration clause). The Settlement Agreement 13.The parties’ affirmations show that on 28 October 2024, executives of each company met to discuss the terms under which the supply of sand fill could be resumed by the Defendant. 14.On 2 November 2024, the Defendant sent a draft settlement agreement to the Plaintiff capturing the matters discussed at the meeting, as the Defendant’s affirmation evidence puts it. This was a commendably simple agreement clearly intended to be entered into between people in the construction business. It stated the contents of the settlement agreement in five clauses. There was no reference to dispute resolution. 15.On 9 November 2024, the Plaintiff’s lawyers wrote to the Defendant stating that they were instructed to amend the draft settlement agreement – the amended draft sensibly maintained the same format while proposing amendments to the terms. It was attached for the Defendant’s consideration and agreement. 16.It is not in dispute that on 11 November 2024, the parties entered into the Settlement Agreement. The terms were straightforward:
17.Unfortunately, the parties fell out as to whether the settlement they had negotiated had been complied with. The Plaintiff’s case is that the sand supplied by the Defendant contained black mud and did not meet the quality requirements of the Settlement Agreement. The Defendant denies that the sand it supplied was contaminated or failed to meet the required standards its case being that the Plaintiff wrongfully failed and/or refused to collect it. 18.Essentially, the question is by what mechanism that issue is to be determined. On 18 December 2024, the Plaintiff commenced the present proceedings. The Defendant issued the stay summons on 12 February 2025. The parties’ contentions 19.The Defendant contends that the stay summons is instigated by the Plaintiff’s conduct in commencing the present proceeding disregarding the arbitration clause. The Plaintiff, it contends, rests its claim on the alleged breach of the Contract, claiming for loss and damage suffered as a result of the Defendant’s alleged breach in that the Defendant failed to supply marine fill as prescribed by the Contract. In doing so, the Plaintiff flouted the parties’ mutual obligation to pursue arbitration in the event of disputes. It is audacious to suggest that the claim is based on the breach of the Settlement Agreement when the Plaintiff has twice pleaded that it is seeking relief for the Defendant’s wrongful repudiation of the Contract or breach of the Contract, not on the alleged breach of the Settlement Agreement. 20.The Defendant contends that the Plaintiff’s reliance on Clause 1.6 of the Settlement Agreement is to no avail. The Plaintiff was legally represented during the negotiation of the terms of the agreement, and its proposed amendments, which culminated in the Settlement Agreement on 11 November 2024 and did not preclude arbitration. While clause 1.6 could be read as excluding the Contract’s dispute resolution framework from the Settlement Agreement, the clause neither precludes arbitration nor conflicts with the Contract’s arbitration clause. The subject disputes are unquestionably covered by the clause. The substance of the Plaintiff’s case rests solely on the alleged repudiation of the Contract, and the parties are bound to pursue arbitration to resolve that dispute. The Plaintiff’s commencement of the present proceedings is an abuse of process, which has been condemned by a wealth of precedents. 21.The Plaintiff submits that prior to the Settlement Agreement, clause 12 of the Contract was effective. From 11 November 2024 onwards, the effect of clause 1.6 is that any disputes are to be resolved in the Hong Kong courts. By the clause, the parties evinced a clear intention that any disputes arising out of the Settlement Agreement should not be referred to arbitration. The effect of the presumption in favour of one-stop adjudication is that clause 1.6 supersedes clause 12 of the Contract, such that the parties need to resolve all disputes arising after the Settlement Agreement including matters that arise out of the original Contract through the Hong Kong courts. 22.The Plaintiff submits that the “centre of gravity” of their claim is the Defendant’s breach of the Settlement Agreement. The same result comes from applying a one-stop adjudication approach. The Defendant’s liability for such failure has effectively been admitted in the Settlement Agreement, and any defence that the Defendant did not breach the Contract would be liable to be dismissed on summary judgment. The only outstanding issue with regard to the supply of sand pre-30 September 2024 is the quantum of damages based on the agreed formula in the Contract. On a purposive or commercial interpretation, clause 1.6 has the effect of superseding clause 12 (including the arbitration agreement) both for disputes arising out of the Settlement Agreement and for disputes arising out of the Contract. The applicable legal principles 23.In Jingdong E-Commerce (Trade) Hong Kong Corporation Ltd v Mavin Electrons Ltd [2024] HKCFI 3110, Deputy High Court Judge Jonathan Wong summarised the basic principles applicable to a stay in favour of arbitration at §3.2:
24.I gratefully adopt that summary. The learned judge went on to consider the proper approach where the issue arises in the context of a number of contracts between the parties which variously contain an arbitration clause and a clause conferring jurisdiction on the Hong Kong courts (at §§3.3 et seq). 25.In Houtai Investment Holdings Ltd v Leung Yat Tung & Ors [2021] HKCFI 1504 at §21, Mimmie Chan J refers to the “centre of gravity of the dispute” test in the case of multiple related commercial agreements, each dealing with different aspects of the parties’ dealings, with its own provision for choice of jurisdiction, law and/or mode of dispute resolution. She held as follows:
26.The situation where an agreement gives rise to a dispute and the parties subsequently enter into a settlement agreement, was considered in the English Commercial Court in Monde Petroleum SA v Westernzagros Ltd [2015] EWHC 67 (Comm). The facts are different from the present case in that though the clause in the Settlement Agreement case does not prescribe either arbitration or the courts, it does state that the arbitration clause in the Contract is not to apply to the Settlement Agreement. 27.Where the dispute resolution provisions are different in a settlement agreement from those in the original contract, the principles as discussed in Monde at §38 point to the significance that can attach to a “second in time” settlement agreement:
28.Whatever the precise facts, it has been said that what is required is a careful and commercially-minded construction of the agreements providing for the resolution of disputes (the Amtrust case at §48). The Jingdong case is an example of a case where such analysis resulted in the “first in time” arbitration clause being held to govern the dispute, and the question is which outcome applies in the present case. Discussion 29.It is convenient to begin with the Jingdong case which is heavily relied on by the Defendant. However, there is an important difference between the Jingdong case and the present case. In Jingdong, the settlement agreement provided that, “In relation to all disputes or disagreements in relation to this agreement, the court of the Hong Kong SAR shall have jurisdiction”. It was held that this clause could sit in parallel with the arbitration clause in the SPA. 30.By contrast, clause 1.6 of the Settlement Agreement in the present case provides that, “Clause 12 of the original contract shall not apply to this settlement agreement”. There is an issue as to what clause 1.6 means. As is pointed out on behalf of the Defendant, this is not a jurisdiction clause. Counsel for the Defendant submitted that it was a route for the parties to agree on a way to settle disputes, but does not commit the parties to litigation in the courts. Most importantly, clause 1.6 does not exclude arbitration. 31.I would not disagree with that way of putting it. But there is a difference between construing the contractual terms so as not to exclude arbitration, and construing the terms so as to require the parties to arbitrate, which is the Defendant’s case. So far as claims arising under the Settlement Agreement are concerned, the arbitration route would require a fresh arbitration agreement between the parties because clause 12 of the Contract which contains the arbitration clause has been expressly disapplied. It is clear, therefore, that the arbitration clause in the Contract does not apply to claims arising under the Settlement Agreement. The “centre of gravity” test applies where there are a number of dispute resolution clauses which might govern the dispute as a whole, and it is necessary to refer the dispute to one of them. Unlike in Jingdong, there is no question of clause 1.6 and clause 12 sitting in parallel, because the one expressly excludes the other. This raises the issues which were raised by the court in Monde at §38 cited above. 32.The argument at the hearing centred on whether the Plaintiff’s claims in these proceedings arose under the Contract (as the Defendant submitted), or under the Settlement Agreement (as the Plaintiff submitted). 33.A starting point is the writ and statement of claim, with one caveat – it has been said in this context that in considering a claim, the court should look at the nature and substance of the claim and the issues to which it gives rise, rather than simply to the form in which it is formulated in a pleading (Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) and others [2023] UKSC 32 §49). 34.The indorsement on the writ states that the Plaintiff claims against the Defendant for HK$16,342,815 being the under-recovery of overheads and profits due to the wrongful repudiation of the Contract, alternatively, damages for breach of the Contract. Read alone, this supports the Defendant’s case. 35.However, the Statement of Claim explains the claim more fully. The first part sets out the terms of the Contract, and the Defendant’s alleged breach of the Contract. The second part (from paragraph 14 on) deals with the settlement discussions leading to the Settlement Agreement. It pleads breach of the Settlement Agreement on the grounds of the alleged failure to separate the sand from the black mud, and the consequent inability of the Plaintiff to dispose of any sand. By paragraph 23, it pleads that “Pursuant to Clause 1.5 of the Settlement Agreement, the Plaintiff's rights to seek loss and damage against the Defendant due to the Defendant's wrongful repudiation of the Contract remains”. The prayer is in substance the same as the indorsement on the writ. 36.In substance, the pleading follows and reflects the terms of the Settlement Agreement. That agreement is structured in the form of a notice given by the Defendant (“our company”) to the Claimant. Clause 1.2 provides (with the agreed translation) that:
37.The heart of the settlement terms is in clauses 1.4 and 1.5:
38.In other words, if the sand is supplied by the Defendant in accordance with the revised schedule, the Plaintiff withdraws its claims arising under the Contract from the suspension of delivery on 30 September 2024, but if the Defendant fails to do so, the Plaintiff reserves its rights pursue these claims. In one form or another, this is a standard feature of a settlement. If in case of breach by the Defendant, the Plaintiff chooses to pursue the claims arising under the Contract, the claims are assessed by the terms of the Contract, but brought under the Settlement Agreement. 39.As already noted, clause 1.6 goes on to deal with dispute resolution:
40.I would follow the approach in the Monde case cited above. The Plaintiff’s claims are, in my view, brought under the Settlement Agreement. This is consistent with the terms of the Settlement Agreement. The fact that reference is made to the Contract in the writ and statement of claim follows from the fact that under clause 1.5 the Plaintiff has reserved its rights under the Contract in case the Settlement Agreement is breached. Because of clause 1.6, the Plaintiff is not bound to bring the claim in an arbitration, and can bring it in court. I consider that this is the commercially-minded way in which to construe the terms in question as called for in the Amtrust case at §48 cited above. 41.In the light of the above, I come to apply the principles as summarised in the Jingdong case above. There is an arbitration agreement between the parties which is capable of being performed, but the dispute is not within the ambit of the arbitration agreement because the arbitration agreement has been disapplied for such dispute. The point is in my view clear, and it follows that the Defendant is not entitled to a stay. 42.Consistent with the order in the Jingtong case, I make a costs order nisi that the Defendant is to pay the costs of this application on the indemnity basis. 43.I thank Counsel for their assistance.
Mr Paul Yuk Pui Lee, instructed by Wong & Lawyers, for the Plaintiff Mr Rex Yam, instructed by Howell & Co., for the Defendant | |||||||||||||||||||
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